Community Development District Consulting with Kite Tax Lien Capital CDD Consulting KTLC

Due to increased institutional lending and an upswing in demand for residential real estate, lucrative opportunities are emerging for tax lien investors in community development districts (CDDs). Kite Tax Lien Capital leverages unparalleled access to the secondary tax lien market, relationships with active CDD developers and institutional CDD bond owners and a vast knowledge of the legal nuances within these communities to optimize our investors' returns.

Introduced to Florida in 1980, CDDs present an alternative mechanism for developers to finance, construct and maintain the necessary infrastructure to develop a community. Instead of securing a traditional bank loan to finance this construction, CDDs allow the developer to create a special purpose quasi-government for the community. This enables the developer to issue tax-exempt bonds, which are collateralized by the underlying real estate. In turn, this bond issuance funds the construction of roads, sewers, electrical grids, clubhouses, golf courses and other amenities. Prominent CDDs include The Villages, Tampa Palms, Viera and St. Lucie West.

Of the 600+ community development districts in Florida, over 400 were created between 2003 and 2008. When the real estate crisis unfolded, many of these CDDs were crippled. As institutional lending for new home construction evaporated, CDD developers utilizing CDD funding began defaulting on their bond assessment payments and property taxes. Today, many of these districts have defaulted on their assessment bond payments, causing the bondholders to accelerate the developers’ debt payments. As the market limped into the new decade, investors seeking niche investments began researching various acquisition strategies within these heavily depreciated but well structured communities.

CDD Assessment Bond Acquisition

Community development district bonds are traditionally issued and purchased on the primary market by institutional mutual funds. The bond assessment payments are co-equal in priority to the lien of ad valorem taxes. When a developer defaults on these bond payments, the total balance due is automatically accelerated per Florida law. This acceleration allows the CDD’s government the right to initiate foreclosure proceedings on the underlying real estate. In many cases, the outstanding payments due on these properties will exceed the property’s assessed value. This has historically lead securities evaluation services to devalue the district's bonds.

With market volatility and fluctuating demand for new homes, many institutional CDD bond owners are reluctant to foreclose on the developer. This has generated a high volume of discounted bond trading from the institutional level to the private sector. These private sector investors are often experienced real estate developers and opportunistic real estate investors.

CDD Tax Certificate Acquisition

Because CDDs are subject to certain unique legal procedure, risk management evaluation of these districts’ outstanding tax certificates can be problematic for tax lien investors. Many variables that must be examined in order to adequately underwrite outstanding CDD tax certificates include:

Asset Classes:
• The district’s tax bill configuration
• The ratio of assessment bonds to operations/maintenance bonds
• Total vertical development
• The capital improvement plan

Because assessment bond liens carry a co-equal priority to ad valorem taxes, developers acquiring community development districts through bond foreclosure proceedings must also bring the property's delinquent ad valorem taxes current. This typically occurs on an as-needed basis either to avoid issuance of a tax deed or to convey clear title when selling the property. As a result, savvy tax lien investors with access to the secondary tax lien market may speculatively purchase heavily discounted tax certificates within "promising" CDDs. Prior to investing, a knowledgeable tax lien investor also factors in a wide array of issues that may not be apparent upon a cursory glance at the tax certificate.

As the residential development market continues to rebound, unique opportunities emerge within these districts. While these opportunities do exist, a substantial amount of due diligence is required to ensure that certain legal intricacies will not prevent the redemption of these tax certificates. Kite Tax Lien Capital offers a blueprint for acute investing within CDDs throughout the State of Florida for our clients and investors.

Click Here Contact Us About Investing in CDDs